By Bernie Cahiles-Magkilat
For the very first time, the government’s premier investment-generating agency – the Board of Investment (BOI) – has spoken against “rushing” the implementation of proposed cuts in tax incentives, which had been committed to export and labor-intensive investors in the country.
The BOI and the Philippine Economic Zone Authority (PEZA) released separate statements yesterday on the TRABAHO (Tax Reform for Attracting Better and Higher-quality Opportunities) Bill, which seeks to overhaul the country’s tax incentives regime to make it performance-based, time-bound and relevant.
The BOI has been supportive of the Duterte administration’s move to rationalize incentives, but this is the very first time that the agency has raised caution against the proposed measure under the proposed TRABAHO Bill, which seeks to replace or reduce the current tax incentives particularly the 5 percent tax on gross income earned (GIE) to investors registered with the PEZA.
“We have to carefully manage the transition period, and not rush the cutting of incentives such as the 5 percent GIE that we promised to the PEZA locators,” said BOI Managing Head Ceferino S. Rodolfo even as he reiterated the agency’s position that they are for the tax reform proposal especially in making the incentives time-bound.
“But let us manage the transition period better,” said Rodolfo of the proposed TRABAHO Bill, the second tax reform package of the Duterte administration which also proposed to reduce the current 30 percent corporate income tax (CIT).
The BOI has specifically urged the Department of Finance, which has spearheaded the government tax reform agenda, to consider a 5-10-year range of transition before the new reform measure can be fully implemented.
“In the meantime, the GIE can also be brought up to 8 percent so there can be an immediate additional revenue that can help balance the planned reduction in CIT,” Rodolfo said.
According to Rodolfo, “Affected exporter-locators have expressed concern that the change in the system may compel them to redirect their expansion plans elsewhere and even risk the possible transfer of their current operations to other countries. There is a risk and we should minimize all the risks as we need all the jobs we can generate.”
“We should therefore be careful in the transition for those who are 100% exporters and labor intensive and are paying more than what they receive in terms of incentives. We also need to take into account innovative companies that are upgrading their products and moving up the value chain along with companies whose activities address gaps in and whose operations are crucial to the supply or value chain or activities that would increase competition in the domestic market.”
Rodolfo cited TIMTA (Tax Incentives Management and Transparency Act) data from 2015 to 2017 where the top ten PEZA enterprises paid total taxes of P45.3 billion while income tax incentives availed amounted to P45.1 billion resulting in a net revenue position of P0.2 billion. Their exports which accounted for 22 percent of the country’s total reached $40.7 billion in the same period. Their local purchases totaled P110.1 billion. In the same period, number of workers per year averaged 165,300.
Rodolfo cited that one high-tech electronics company posted a cumulative net tax revenue of P3 billion during its presence in the Philippines from 1981-2018, as its total taxes paid stood at P5.2 billion versus its income tax incentives availed of P2.2 billion. During the period , exports totaled $3.9 billion, local purchases of P22.2 billion, salaries and wages paid amounted to P67.6 billion while employment expanded from 3,378 workers in 199 to 24,222 in 2018, just for that company.
In terms of BOI income tax holiday, Rodolfo said, its registered companies also contribute revenues to government in the form of other taxes paid and the ratio is around 1:4.7 or for every one peso incentive, the companies pay around P4.70 for other taxes. In 2017, the BOI total incentives availed was P27 billion, but total taxes paid was P128 billion.
More importantly, BOI incentives are time-bound. After 4 years, there is no foregone revenue but the tax payments continue on.